When still finance minister Gerald Sendaula once said in
response to a question about solving the poverty question, “You cannot throw money at poverty and hope to
eradicate it.”
At the time I thought the statement was strange.
If poverty is absence of money and you throw money at it
haven’t you sorted it out?
Sendaula has been proven right many times. We have seen
money being donated to people and communities around the country. There is an
initial improvement in welfare, more form the euphoria than anything else,
before the beneficiary communities fall back into poverty.
They are probably worse off because they have now tasted the
“good life” so their impoverished state is now even more painful.
"The idea that money is the solution is based largely on the flawed analysis that the main – and sometimes the only, reason our start-up businesses are floundering is for lack of cash...
The other day a report was released, which showed that only
2.8 percent of the youth in the country have access to credit and as way to
ease access some youth have suggested that financiers should take their
academic transcripts as collateral for the credit.
Hopefully it will not be taken seriously because if it is,
it will only aggravate an already bad situation.
This kind of suggestion is
clearly made from a position of ignorance of how financiers operate.
I suspect most research done into the plight of
entrepreneurs, whether youth or not, is done by people who have not been
entrepreneurs themselves.
To read these papers they put lack of capital at the top of
the agenda, that if the entrepreneurs, youth had capital all will be alright.
Tell that to a retired NSSF saver who blows his millions on
enterprise after enterprise and now has to find a job again. Tell that to the
lottery winner, the sensible one who decided that with his winning he would
start a business and today has little to nothing to show for it. Tell that to
any number of people who have earned a windfall by virtue of their position or
birth or luck and have tried to go into business and have seen their windfall
slip right through their fingers.
What these youth need urgently is some training in financial
literacy and business management, but more importantly mentorship by someone
who has already travelled the path they want to follow.
And if they are faithful to the process, described as being
beaten down seven times and getting up eight times, they will understand that
money is not the problem.
In fact, in reality there is too much money flying around
all one has to do is reach out and grab it.
Using mobile money as an example, last year about
sh54trillion was transacted over all mobile money networks which comes to about
sh31 million every second. If you think about this money is going from mobile
account to mobile account through space, wheezing past, over, under and even
through you. And we haven’t even started talking about the many more trillions
that transact through the banks.
The trick is how to get a piece of this action.
"To begin with, the youth need to understand how a company works. A company beyond sharing risk, is a universally understood structure for creating value. The company brings together resources and if it is efficient, the output is value. If not there is a loss of value and the company’s promoters either change the way they do things or the company goes bust....
And when I talk about a company, I am not talking about
registering – any fool can register a company, I mean do you know how to make
it work.
To make it work takes hard work and sacrifice – you learn, among other things, that as the
owner of the company you get paid last. In the initial stages you may not get
paid at all.
This is important and answers the issue about a lack of
capital.
The companies that work, that is that produce value, never
lack for capital. If the youth have no access to capital it’s because they have
not understood how to organise themselves into a company, essentially to work
together towards a shared goal.
A financier – a lender or investor’s most important
consideration is “How will I get my money back?” Failure to satisfy this most
basic of conditions is what leads to a lack of capital.
It is true too that Uganda has no formal financing options
for startups. Our financial sector is dominated by commercial banks, who at
best lend only to going concerns. But our youth will still have a better chance
than not if they learn and practice how to operate like companies.
Key to operating as a company is to have financial
statements, which without visiting your operations a financier can get a good
idea of your enterprise’s viability and make an informed decision on whether to
invest or not.
If you understand all tis you will see why your engineering
or medical or even accounting degree cannot serve as collateral for your
business.
It does not answer the financier’s key question “How do I
get my money back?”
